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IW Best Plants Profile - 1995

In 1986 began conversion to self-directed work teams; 100% of production workforce now participates in SDWTs.

Reduced manufacturing cycle time from 42 days to just three days.

Increased productivity by 92.5% in five years.

Earned Rocky Mountain Quality Award from American Society for Quality Control in 1992.

Slashed scrap/rework by 60.6% in five years, while reducing customer rejects by 63.6% and warranty costs by 58%.

Reduced total inventory by 51.8% in five years.

Compressed product-development cycle time by 91.4% since 1986.

Reduced manufacturing costs 63% in five years.

When GTE Corp. established an electronics manufacturing division in Aurora, Colo., in 1980, it was considered an intrepreneurial "experiment" that the telecommunications giant hoped would develop the quick-response capability to compete with smaller, more agile competitors. The experiment proved a success -- although many of its most significant achievements occurred after GTE spun off the business in 1984. Actually, GTE had planned to close the facility as part of a strategic decision to divest manufacturing operations. But Bill Sanko, who had been division vice president and general manager, persuaded a handful of his fellow managers to pool their resources -- taking second mortgages on their homes -- and buy the business, which became XEL Communications Inc. The bold move not only saved 70 jobs, but it helped to establish risk-taking as one of the core values, which has since driven the firm to new heights. A maker of electronic products for the telecommunications industry, including the inflight Airfone marketed by GTE, it now boasts 305 employees. Last year XEL recorded a 122% leap in revenues. Not long after the buyout, the firm's senior managers asked themselves -- and their employees -- what kind of company they wanted XEL to become. As part of the exercise, they reflected on their commonly held values. Risk-taking and innovation were high on the list. Key executives also shared a belief in the power of self-management -- long before it became one of the buzz-words of the empowerment movement. "We said it would be great if we were a company of self-managers, where everybody accepted responsibility for the quality of their work and for customer satisfaction," recalls Sanko, who is now XEL's president and CEO. The firm began experimenting with self-directed work teams in 1986, starting with a single pilot team. "There wasn't a lot of literature on the topic back then," he says. "But we'd try things out and -- if they worked -- we'd keep them, always with a view to improving our response time." "We were in a dramatically changing industry," recalls Julie Rich, vice president of human resources and one of the XEL founders, "and we needed dramatic changes in our organization." But she and others concluded that "if change was going to happen, it would have to be for strategic reasons -- not just because it felt good." Implementing empowered work teams is "a hard thing to do," she stresses. "And that's why a lot of organizations aren't successful at it. You have to believe in the concept, in your core, or when things get tough you'll back away from it." XEL's plant teams include processoriented teams (which oversee key circuit-board manufacturing operations such as auto-insertion and wave soldering) and product manufacturing teams (which handle manual assembly tasks, do touch-up work, and take responsibility for getting customer orders shipped on time). Line-supervisor positions were eliminated on the plant floor. "The teams make the commitment to the customer," says Sanko, who underscores his point by telling this story: One day, a group of bankers paid a visit to XEL, and Sanko escorted them on an early afternoon plant tour. When they reached the auto-insertion area, where highly automated machines put tiny components onto printed circuit boards, there wasn't a worker in sight. The bankers were astonished to find the area deserted, until it was pointed out that the auto-insertion team had agreed to complete a rush order for one of the product teams by 6 a.m. "The team members had come in at 2 a.m. to meet that commitment, and by the time we toured their area they had all gone home," Sanko notes. "There was no management involvement in the decision. They decided what had to be done -- and they did it." It was fluctuation -- and the unpredictability -- of demand that initially drove XEL to explore ways to improve its manufacturing flexibility, thus enabling it to conserve cash by keeping finished-goods inventory at a minimum. "We have a marketplace that doesn't forecast very well," explains Bill Sanko. "But when they want products -- they want them NOW." Because market forecasts tend to be unreliable, observes Malcolm Shaw, director of international sales, "The answer had to lie in improving the one item any manufacturing corporation has control of -- the manufacturing process itself." Developing a culture of innovation and team decision-making -- coupled with the adoption of just-in-time (JIT) methods with cellular manufacturing and
kanban replenishment systems -- has been instrumental in providing the quick-response capability that XEL now prides itself on. In its early days, it had a leg up on the competition with a 42-day manufacturing cycle. Yet the company has since managed to compress that down to just three days -- and hopes to reduce it even further, thanks to improvements that will be realized from its recent relocation from a 53,000-sqft building to a 115,000-sq-ft facility. The new building, which has several conference rooms for team meetings and a computer-based skills training center, features greater emphasis on "point of use" stocking. Manufacturing VP John Puckett, who championed the need for cycle-time reduction, recognized that teams, JIT, and closer links with key suppliers would all play important roles. He attributes much of the improvement to the plant's emphasis on cross-training of employees. "Cross-training in a team environment really helps us to respond to fluctuations in demand," he says, "because you are able to move resources where you need them very quickly -- including engineering resources." Aware that product development is an area where quick response can be critical, XEL has sliced its development cycle by a remarkable 91% since 1986. It streamlined the relationship between sales and engineering design, and provided facilities where customer personnel and XEL engineers could work together on new products -- and incorporate modifications into prototypes "on the fly." Proprietary software that converts circuit-board design data into instructions for the auto-insertion equipment and surface-mount line gives XEL the ability to build prototypes on its automated equipment, thus saving time by eliminating the manufacturing-design step. Nearly any discussion of the firm's manufacturing achievements -- including a 92.5% productivity gain in five years and a 58% drop in warranty claims -- quickly turns to the role of teams. "Without the team structure, we wouldn't be nearly as good on quality," says John Gilpin, VP for quality. "The teams are accountable for assembly defects." Under the plant's Total Quality Control program, operators inspect all components installed at the previous workstation. Each team sets its own quarterly goals for assembly defects (in parts per million), audited defects, on-time delivery, rework, productivity, cycle time, and cost per component. Because production schedules may change with little notice, one of the toughest issues the teams must deal with is "keeping our priorities updated -- what ships today, what needs to be built first," notes Fred Arent, a member of the Red Team, one of several product teams. "You have to make sure everyone is working on the most important jobs. We hold two meetings a day just to keep ourselves organized." Product teams often take different approaches to meeting their goals. "They can make the decisions on the processes they use," notes Puckett, the manufacturing VP. "But they are accountable for results." Operating like mini-businesses, the teams make quarterly presentations to management, discussing goals for the next quarter, whether or not they met the last quarter's goals, and -- when necessary -- explaining why certain targets were missed. A rating system, based on the teams' success against their own goals, figures heavily in payouts made under thecompany's merit pay system. The topranked team might, for example, get a 7% bonus while the bottom-performing team gets much less -- or perhaps nothing at all. In fact, a team with a very poor performance rating could lose the right -- at least temporarily -- to be a self-managed team. Within a given team, adjustments can be made -- based on peer appraisals -- to increase the merit-pay amount awarded to a top-performing employee.